mickeyd
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
The chart below reveals the thin line of managers that have beaten the benchmark over time statistically indistinguishable from zero, according to a recent study.
I have often wondered about Ben Graham's Postscript Chapter in The Intelligent Investor. Hitting/picking/getting lucky with the one big stock/or a very few stocks to the point of making a lifetime of returns(based on a broad index average over say 30 yrs) and walking away or just being average the rest of the time.
None of these "random walk" or "efficient market" studies really prove that there is no such thing as stock picking ability. They merely conclude that the number of people who have consistently beaten the market is not larger than one would expect by random chance or "dumb luck," and thus the existence of consistent "market beaters" can't be proven.
Absent of fees, for example, you might assume there's a 50/50 chance of beating the market. Thus, over 10 years, you might expect 1 person out of 1,024 to beat the market every year by random chance. So if you looked at 10,240 stock pickers and considerably more than 10 of them beat the market every year, you could conclude there is such a thing as "stock picking skill" (using some statistical confidence level, usually 95%). Note that not having more than 10 isn't proof that it doesn't exist -- just that there is no evidence to prove it does.
Some fans of indexing and "efficient market" aficionados like to use studies like these as proof that there is no one who can consistently beat the market (and thus, we should all index). But that, as far as I can tell, isn't the correct conclusion.
Actively managed funds are like annuities on this board. My only point was to put context on these studies which don't prove that any "stock picking ability" exists -- and that's that these studies don't prove it does NOT exist, either, merely that there isn't a statistically significant distribution of consistent market-beaters. One can be a diehard or a Boglehead and recognize that. Doesn't mean actively managed funds are usually the place to be, of course.Whenever people start touting actively managed funds, I say:
Fine, since it's such a good strategy, if the actively managed fund doesn't do better than its index fund, then the person that recommended the managed fund should be willing to make up the difference, or make me whole.
I smell an opportunity in the futures/options market. "Manager default swap" anyone? Brewer??
Whenever people start touting actively managed funds, I say:
Fine, since it's such a good strategy, if the actively managed fund doesn't do better than its index fund, then the person that recommended the managed fund should be willing to make up the difference, or make me whole.
I smell an opportunity in the futures/options market. "Manager default swap" anyone? Brewer??